Wages, Profitability, and Growth in a Small Open Economy

Issues raised by the evolution of a rapidly growing small economy from a labor-intensive, low-technology production base to a capital-intensive, high-technology, knowledge-and-skill-intensive emphasis as it approaches the limits of its resource constraints in the labor market are examined. A model of endogenous growth for a small open economy that is driven by increases in labor productivity from learning-by-doing and that allows for the dynamic acquisition of comparative advantage is developed. In this framework the effects of policies and exogenous shocks on the direction and pace of restructuring are investigated.